OREANDA-NEWS. December 02, 2011. Sberbank Group (hereafter “the Group”) has released its condensed interim consolidated IFRS financial statements (hereafter “the Financial Statements”) as at 30 September 2011 and for the 9 months ended 30 September 2011, with an independent review report by Ernst & Young Vneshaudit, reported the press-centre of Sberbank.

Statement of financial position highlights:
The Group continues to see loan demand picking up with 9 months 2011 growth in the gross loan portfolio of 18.1%. The Group is also benefitting from an increasing share of retail loans which are growing faster than corporate ones.

The Group’s Equity as at 30 September 2011 includes negative fair value reserve for investment securities available for sale of RUB 13.8 billion which is a result of negative revaluation of available for sale portfolio following significant volatility of financial markets. 

Customer deposits, in particular retail deposits, remain the major source of funding for Sberbank, growing in 9 months 2011 by 8.8%.

Income Statement highlights:
Net profit for 9 months 2011 reached RUB 255.8 bn (or RUB 11.82 per ordinary share), with more than twice increase on RUB 109.6 bn (or RUB 5.07 per ordinary share) for 9 months 2010.

The Group’s revenues continued to be of high quality sourced from core banking operations, with net interest income and net fee and commission income accounting for 92.9% of total operating income before provision for loan impairment during 9 months 2011.

The Group’s net interest margin increased in second and third quarters of 2011 by 0.3 pp and 0.2 pp accordingly driven by the growth of interest earning assets, their composition and the decrease in cost of funds from 3.6% to 3.3%.

Despite higher operating expenses in 9 months 2011, the Cost to Income ratio stays at an adequate level of 45.7% versus 40.5% in 9 months 2010.

The improving Russian economy and ongoing implementation of new risk management and recovery procedures have positively affected loan quality, resulting in recovery of provisions of RUB 16.8 bn. In particular, in 9 months 2011 there were a number of loans which were previously provisioned for as impaired or non-performing, but were subsequently recovered /disposed off. As a result, the non-performing loan ratio declined to 6.1%, while the non-performing loan coverage ratio remained strong at 1.5x as of 30 September 2011.

Return on equity improved and reached 31.5% in 9 months 2011 on an annualized basis.

Financial and Operating Review:
Interest income increased for 9 months 2011 by 4.3% year-on-year to RUB 615.2 bn. The increase was driven by the growth of interest earning assets and their composition but the effect of this growth was moderated by a decline of average yields on corporate loans. The yields on retail loans stabilized at 15.0%-15.2% level.

Interest expenses decreased for 9 months 2011 by 13.4% year-on-year to RUB 198.4 bn. The largest component of interest expenses was interest on retail deposits which are a core source of funds for the Group. The cost of retail deposits continued to decrease during Q3 2011 as deposits with high interest rates placed in 2008-2009 retired, leading to a lower overall cost of funds for Sberbank.

Net interest income for 9 months 2011 totalled RUB 416.8 bn, a 15.6% increase year-on-year. This increase reflects growth and change in the structure of interest earning assets and improved pricing on deposits. Net interest income remains the main component of the Group’s operating income, accounting for 75.0% of total operating income before provision charges for loan impairment.

The Group’s net fee and commission income totalled RUB 99.8 bn for 9 months 2011, a 13.4% increase year-on-year. This growth was supported by a variety of fee-generating operations, especially operations with bank cards.

Net gains on operations with securities, including gains on trading securities, securities at fair value and securities available for sale, totalled RUB 5.6 bn for 9 months 2011, a decline of 73.1% year-on-year. In addition to this, the group showed decrease in revaluation reserve of investment securities available for sale within other comprehensive income of RUB 39.7 bn.

Total operating income before provision for loan impairment for 9 months 2011 reached RUB 556.1 bn, compared to RUB 483.0 bn for 9 months 2010, a 15.1% year-on-year increase. The growth in operating income was primarily driven by robust and improved net interest income, well supported by net fee commission income and other operating income.

Net recovery of previously recorded provision for loan impairment for 9 months 2011 totalled RUB 16.8 bn, compared with net charges of RUB 150.0 bn in the 9 months 2010. This reflects the better quality of the overall loan book as the Russian economy has improved. Additionally, the Group has benefitted from its increased focus on managing impaired and non-performing loans and achieving recoveries on a number of individual loans previously classified as impaired or non-performing.

The Group’s operating expenses grew in 9 months 2011 by 29.9% year-on-year. The main drivers of this growth was a planned increase in salaries, as the Group raised its employee compensation to make it more competitive relative to current market levels, and also incurred higher salary taxes. Other operating expenses increased by 32.7% compared with the 9 months 2010, due mainly to costs incurred in relation to the Group’s continuing implementation of its strategy, notably in terms of new infrastructure projects. As a result, the Group’s cost to income ratio was 45.7% in 9 months 2011 versus 40.5% in 9 months 2010.

The Group’s net profit in 9 months 2011 totalled RUB 255.8 bn versus RUB 109.6 bn in 9 months 2010. The major reason for the more than double increase was a higher operating income and a net recovery of loan impairment provisions.

Total comprehensive income for 9 months 2011 showed a 56.7% growth to RUB 213.9 bn compared with RUB 136.5 bn for 9 months 2010, with the increase almost entirely attributable to net profit growth.

As at 30 September 2011, the Group’s total assets reached RUB 9,545.5 bn, an increase of 10.6% since 31 December 2010.

The loan portfolio after provisioning for loan impairment increased by 21.2% in 9 months 2011. Loans to individuals before provisions for loan impairment grew by 20.7% to RUB 1,593.2 bn as of 30 September 2011, while loans to legal entities before provisions at the same date increased 17.4% to RUB 5,718.3 bn. The Group continues to see loan demand picking up and is benefitting from an increased focus on retail loans which are growing faster than corporate loans.

The Group’s loan quality improved with non-performing loans (NPL), defined as loans for which payment of principal and/or interest is overdue by more than 90 days, decreasing from RUB 452.3 bn as at 31 December 2010 to RUB 445.0 bn as at 30 September 2011. The proportion of non-performing loans in the total loan portfolio (the NPL ratio) dropped to 6.1% as at 30 September 2011 compared with 7.3% at the beginning of the year. As at 30 September 2011, the NPL coverage ratio (total provisions for loan impairment to non-performing loans) was 1.5x. Provisions for loan impairment decreased by 6.2% reaching RUB 658.7 bn as at 30 September 2011. The ratio of provisions for loan impairment to total gross loans reached 9.0% compared with 11.3% at the beginning of the year.

The Group’s securities portfolio declined for 9 months 2011 by 16.3% to RUB 1,526.4 bn as at 30 September 2011, mainly following the disposal / redemption of Bank of Russia bonds in 1H 2011. As at 30 September 2011, federal government bonds accounted for the largest part of its securities portfolio with a 46.9% share. The proportion of corporate bonds in the total securities portfolio increased from 19.4% as at the beginning of the year to 31.5% as at 30 September 2011. In absolute terms the portfolio of corporate bonds amounted to RUB 481.5 bn as at 30 September 2011, having grown 36.4% from the beginning of the year, mainly through purchases of corporate bonds issued by Russian companies.

The Group does not have investments in debt securities of European Union countries/ companies. All the Group’s investments in securities issued by foreign countries/ companies comprise less than 3% of the Group’s securities portfolio and relate to the jurisdictions in which the Group operates.

As at 30 September 2011, the Group’s total liabilities amounted to RUB 8,365.4 bn, a 9.5% increase since 31 December 2010.  The Group’s liabilities structure remained largely stable throughout 9 months 2011. Retail deposits, totaling RUB 5,258.5 bn as at 30 September 2011, have remained the core source of the Group’s funding, accounting for 62.9% of the Group’s total liabilities, and increased by 8.8% compared with year-end 2010. Corporate deposits rose 8.3% to RUB 1,968.3 bn as at 30 September 2011 compared with year-end 2010, and accounted for 23.5% of total liabilities.

The Group’s equity attributable to the Bank’s shareholders amounted to RUB 1,176.4 bn as at 30 September 2011, a 19.7% increase during the 9 month 2011. As at 30 September 2011, the Group’s total capital adequacy ratio (Tier 1 and Tier 2) calculated under Basel 1 was 17.3%, well above the 8% minimum requirement, and the Tier 1 ratio was 13.2%.